One of the more popular types of investments in Singapore is the real estate investment trust. Right now, there are over 30 REITs in the local stock market that invest across a wide variety of real estate sectors.
Some of the greatest investors around – good examples are John Neff and Walter Schloss – look at lists of stocks that have fallen hard for potential investing ideas. They believe that some beaten-down stocks may be bargains in relation to their actual economic worth.
Nearly once every week, I run a screen to look for companies in Singapore’s market that are near 52-week lows. In most weeks, REITs will appear on my screen.
So, let’s take a closer look at three REITs I’ve chosen at random from a list of REITs that have unit prices near their respective 52-week lows. The trio are: Far East Hospitality Trust (SGX: Q5T), OUE Hospitality Trust (SGX: SK7), and Frasers Logistics and Industrial Trust (SGX: BUOU).
Source: S&P Global Market Intelligence
Far East Hospitality Trust is technically not just a real estate investment – it is a stapled trust comprising a REIT and a business trust. It currently has 12 properties in its portfolio, of which eight are hotels and four are serviced residences. The portfolio is collectively valued at S$2.44 billion (as of 31 December 2015) and have over 2,800 hotel rooms and residential units.
These properties are mostly located in close proximity to Singapore’s Central Business District, and core shopping belt. Examples of hotels under the trust are The Elizabeth Hotel, Village Hotel Bugis, and Orchard Parade Hotel.
Far East Hospitality Trust was listed back in 2012 and its distributions per stapled security has fallen for two consecutive years, as shown in the table below:
Source: S&P Global Market Intelligence
In Far East Hospitality Trust’s latest earnings release, it commented that the “hospitality industry in Singapore is expected to remain competitive. The addition of more than 3,300 new hotel rooms this year is expected to result in increased competition. While there is demand from leisure travellers, the corporate segment, a key focus of the REIT, continues to be soft.”
OUE Hospitality Trust is similar to Far East Hospitality Trust in a number of ways.
First, it is a stapled trust that is made up of a REIT and a business trust; second, it is a trust with a focus on hospitality assets; third, it is a relatively new entity in Singapore’s stock market as it only got listed in the second half of 2013; fourth, it has recently seen its distributions fall; and fifth, it has a poor outlook in its latest earnings release. Let’s touch on these in more detail.
OUE Hospitality Trust has three properties in its portfolio right now, namely, the high-end retail mall Mandarin Gallery and the hotels Mandarin Orchard Singapore and Crowne Plaza Changi Airport Hotel. They have a collective value of S$2.05 billion as of 31 December 2015; this value does not include an extension of Crowne Plaza Changi Airport Hotel that was purchased by the trust on 1 August 2016.
OUE Hospitality Trust has also seen its distribution per stapled security in 2015 fall, from S$0.0674 in 2014 to S$0.0655. In the trust’s latest earnings release for the second quarter of 2016, it commented that “the tourism industry [in Singapore] continues to face headwinds in the near term” and that “increased rooms supply in Singapore had created a highly competitive market environment and this would likely persist.”
Last on the list is Frasers Logistics and Industrial Trust, a REIT that currently has a focus on Australia. The REIT held its initial public offering only in June this year and had 51 Australian industrial properties at listing. These properties have a total appraised value of A$1.585 billion.
On 31 August 2016, the REIT had exercised its options to purchase two more Australian industrial properties, thereby enlarging its total portfolio to 53 assets.
A Foolish summary
Though the REITs mentioned above are trading near their respective 52-week lows, there is no guarantee that their unit prices will not fall further.
What is important is the business performance of the REITs going forward. Some important areas for investors to look at with the REITs before coming to an investment decision include their property profiles, debt profiles, and quality of management.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.